FCA finds deficiencies in firms’ Consumer Duty outcomes monitoring

What does this mean?

The FCA requested the most recent board and/or committee reporting from 20 large insurance firms in December 2023. These included general insurers, life insurers, insurance intermediaries and regulated third-party outsourcers which service insurers. It asked firms to show how they monitor, assess and test customer outcomes, along with actions taken after identifying poor outcomes. 

While the FCA observed some instances of good practice and progress, it found that most firms in the review need to make improvements in their monitoring, to meet the standards of the Duty. 

Design of monitoring and data

The FCA found that some firms overly relied on process-completion metrics (e.g. the number of outstanding value assessments) rather than outcomes metrics. It highlights claims settlement as an area where firms need to monitor more comprehensive data.

Good practice includes firms clearly defining specific outcomes and types of foreseeable harm, and identifying the comprehensive metrics required to monitor those outcomes. 

The FCA was disappointed to find that some firms are continuing to base outcomes monitoring on repackaged existing data, which it has previously warned is not sufficient. 

Interpretation and scrutiny

Firms are expected to present and explain their data in a way that enables senior management and boards to effectively oversee and challenge outcomes monitoring.

The FCA highlights a number of poor practices, including:

• numbers presented with limited narrative and context, and with no recommendations even where poor outcomes were highlighted

• thresholds/targets which appear to be arbitrary, set too high/low, or insufficiently granular.

The FCA says it will consider taking action where it sees these practices, particularly where poor outcomes could have been prevented or reduced with adequate monitoring.

Monitoring outcomes for different customer groups

The FCA says it did not consistently see firms monitoring outcomes for different groups of customers, including vulnerable customers. It did, however, identify instances of good practice, including some firms monitoring outcomes for customers with characteristics of vulnerability as a subset of data across a range of metrics.

Actions taken to address poor outcomes

Firms must identify where customers are not getting good outcomes, understand why, take action, and monitor the impact of changes made. 

Most firms could point to some form of process improvements made, such as amending sales documents. But some firms did not provide any examples of actions taken as a direct response to poor outcomes identified through monitoring. Others were unable to demonstrate how actions had improved customer outcomes. 

Products and services outcome

The FCA says this data was sometimes sparse, with board or committee reporting often focusing on little more than number and timeliness of product reviews completed, rather than the findings of such reviews. The FCA expects firms to not assume that completing a review automatically means good outcomes are being achieved. Instead, it expects firms to combine a wide range of data and metrics to determine whether customers are being sold products that have been designed to meet their needs, characteristics and objectives. 

Price and value outcome

As with the products and services outcome, the FCA saw examples of board or committee reporting focusing on little more than number and timeliness of value assessments being completed. Where it did see a wider suite of MI, this sometimes lacked granularity, such as evidence of value for different customer types, and key aspects of price (such as commission or charges).

Consumer understanding outcome

While most firms have taken action to review customer communications, only a few firms were able to show clear monitoring of whether customers are equipped with the right information to make effective, timely and properly informed decisions. 

The regulator highlights good practice examples where firms combined a wide range of metrics and data, adapted quality assurance processes and methodology, and mapped testing to a range of customer journeys. 

Poor practice examples included monitoring which is overly process-driven or too reliant on one type of data, such as complaints numbers or net promoter scores. 

Consumer support outcome

The FCA found some firms used a range of metrics and data to understand whether good customer outcomes were being delivered, such as customer behavioural data (e.g. lapse rates and requests for assistance) and customer journey timeliness, including first contact resolution.  

However, the FCA says service levels across insurance sectors continue to be substandard, and it encourages firms to strengthen their outcomes monitoring, and review whether  customer support targets and service level agreements are appropriate.

What do firms need to do?

All insurers, insurance intermediaries and outsourced service providers operating in the insurance sector should carefully consider the FCA’s findings. Other firms subject to the Duty should also consider wider implications. 

Firms should reflect on the findings in the development of the first Duty annual board report, and their approaches to outcomes monitoring for closed products. 

They should look beyond the completion of individual exercises (e.g. value assessments) under the Duty outcomes when monitoring customer outcomes. Firms should instead consider the findings of these exercises, using sufficiently granular level data to determine whether good customer outcomes are being achieved. 

Firms should consider whether the data they have available is sufficiently granular and wide ranging to enable them to effectively monitor customer outcomes, rather than processes. Firms should assess their data needs based on the size of their business, their clients and type of products/services they provide. They should be able to demonstrate comprehensive monitoring of outcomes for different groups of customers, including those with characteristics of vulnerability, across their suite of data.

Where poor customer outcomes are identified, firms must be able to demonstrate clear actions to address these. Where actions have been taken, firms must be able to demonstrate how they have tested the impact of these changes.   

Firms should review oversight and governance processes, ensuring outcomes monitoring data is presented to boards/committees with appropriate analysis and narrative, and that targets and tolerances are subject to sufficient scrutiny.

Next steps

All firms participating in the review will receive individual feedback. 

The FCA says that firms that identify gaps in their compliance should act immediately, and put robust plans in place to address these. Where appropriate, the FCA says it will consider the use of supervisory tools.

The regulator is carrying out a range of other supervisory activities to ensure compliance with the Duty, including a cross-sector review of the consumer support outcome. It is also conducting a review of firms’ treatment of vulnerable customers, and is due to share findings by the end of this year. Additionally, the FCA continues to work on its product governance thematic review, for which it provided an update to in-scope manufacturers in February 2024.